we're looking at management practices through a lens of productivity right and so we are hoping that there might be a relationship between the productivity and the management practices less structured management practices adopting firms have lower productivity than those with more structured management practices I'm Lucia Foster um at the Census Bureau I'm the chief of the center for economic studies and I'm the chief Economist of the Census Bureau and as somebody at the Census Bureau I just want to make sure that I say that everything I'm going to talk about today is just my opinion and
not the census bureaus so a lot of people think about the Census Bureau they think about the demographic data that we collect so they think about the desial census or they might think about the current population survey or they might think about the American Community survey but the Census Bureau actually collects a lot of information about businesses every five years we conduct an economic census and we have a number of other surveys that are about businesses so it's really important that we have economists that work at the Census Bureau that can put the data through
its Paces using that data to see if there's any gaps in the data or if there's other parts of the economy that we're missing that we should be talking about or if there's ways to improve the data that we already have so as an economist at the census be I started out using uh the census bureau's business data for my dissertation to look at adjustment costs at manufacturing plants so if it gets hit by a a shock how does a manufacturing plant adjust its employment or other things that it might be doing in response to
a shock right now most of my work focuses on productivity Dynamics so obviously productivity is a really important uh determinant of how an economy is doing it drives a standard of living so what I've been looking at is the productivity of firms and how that impacts aggregate productivity growth so one thing people might not know about the Census Bureau is when we have all this micro dat about businesses we can understand some of the things behind the aggregate statistics that you might be aware of so for instance Bureau of Labor Statistics produces the official statistics
on productivity at the aggregate or industry level but underneath those aggreg get statistics there's some really interesting differences for instance the manufacturing sector and you see productivity growth over a certain time period you might say to yourself okay was that all the businesses in manufacturing are getting a little bit more productive or is there differences in businesses uh in the manufacturing sector and as it turns out there's really important differences So within the manufacturing sector there's some businesses that are very productive and there's some that are less productive and what we see is that aggregate
productivity growth reflects the reallocation of economic activity from less productive to more productive businesses and so some of that might be happening because a less productive business is dying out or a new business comes in and it's more productive but a lot of it's actually just the movement of economic activity from less productive existing businesses to more productive businesses and I think one question that people have about this is why are there less productive businesses that are able to stay in business for so long and that's a really interesting question um and the differences we're
talking about are huge within the manufacturing sector the differences between a business at the most uh productive end of the distribution is about four times that of a business at the Les less productive end of the distribution so a lot of the work that I've been doing for years as trying to understand um why there are these productivity differences so one of the reasons that management and productivity go together is that there's a lot of differences in businesses about their productivity some are very high producct ity and some are very low productivity and so this
is a natural question like why is this um and why does it persist over time so there's a lot of different reasons why it might persist over time but we think that maybe one of them is management practices and for the Census Bureau one of the reasons why this was a mystery is that we have been collecting information about a lot of information about manufacturing plants for years through the annual survey of Manufacturers where we collect information on like capital and labor and energy and materials and detailed information about outputs but we didn't have any
information about a very important component of any economic activity which is the management portion of it so we we were interested in this and we were very lucky because we were uh contacted by some outside researchers Nick Bloom and John vanran who've been working on understanding management and and at businesses for years so they've had like a very long research agenda to look at this and they are also interested in management practices through the lens of productivity so management is a very complicated uh concept you can think of many different dimensions of management practices um
but they were looking at it through a productivity lens and so they were looking more at process oriented management practices rather than like strategic management practices which would be about maybe things like um pricing or Innovative activities or mergers and Acquisitions instead they were interested in process-oriented management practices for instance things like do you set key performance indicators does the business have targets that it tries to set when it's trying to motivate its employees does it do that through promotions and bonuses so while management is a very broad topic we narrowed it down to this
Focus about management practices associated with potential productivity growth and then we did a huge study looking at the impact of productivity and management practices as part of the work on productivity and management um we were able the Census Bureau was able to partner with outside researchers to conduct a survey that we call the management and organizational practices survey it has 16 questions on it about management practices and because we're trying to look at it through a productivity lens we we narrowed it down to three areas which is monitoring targeting and incentives so monitoring is whether
or not you collect key performance indicators how often you collect them who looks at them um targeting is when you set a target for the um manufacturing plant is it easy to reach is it hard to reach and are the workers aware of it or is only Senior Management and then for incentives when there's promotions and bonuses are they tied to your own work or the work of your plant or maybe your team or the firm and so looking at all those practices what we did was we developed the survey that we put first in
the United States um and we sent it out to 50,000 manufacturing plants first in 2010 then in 2015 and then in 2021 the work that I'm going to be talking about is about when we did it for 2015 um and from that that served as a prototype the US Census bureaus work with these outside researchers served as a prototype for other countries to adopt these questions and we were very fortunate um the team worked with many different uh individuals in different countries and we had 13 other countries participate from that we have an enormous data
set that actually is not all together it's 14 separate pieces but it tells us about management practices in each of the 14 countries and from that we noticed some interesting patterns and those became the three natural laws of management and so when I say natural laws of management you might be thinking well natural laws usually refer to ethics or there might be laws of nature which usually refers to hard sciences and here it's sort of an inspirational or aspirational title where we're looking at patterns that appear across all the countries that are um driven by
like an huge empirical data set but patterns that we see that are Universal across the countries so uh we found three of them and they are uh one's about heterogeneity one's about scale and one's about outcomes so for heterogeneity what we found was that within any country the adoption of management P practices and here I mean structured management practices which are when I say about monitoring targets and incentives that the practices that you do for these are more formal more frequent more specific and more explicit so I gave an example before about a question about
incentives and I said you know how are bonuses decided for let's take example managers in this plant how do you decide who gets a bonus for a man managers and one of the answers might be well we don't give bonuses so okay that would be a very non-structured management practice or it could be that well the bonus depends on how the company's doing also not quite as structured but if it's something like for the persons rather than the team that they work on then that's very specific to what's going on for that person and so
their bonus is very much tied to their own work it's not tied to the work of the team that they're on the plant that they're in or the company that they're in so we look at all the plants uh that answered the survey in each of the 14 countries and for each of them when they answer the 16 questions for those that answered with uh less structured practices each question gets a zero if they have more structured it gets a one and then there's values in between it and so for instance if you think about
it every business has a 16 scores we take those scores take an average and that's how structured their management practices are so they have a number between zero and one and so when we look at the distribution of all these adoptions of management practices within a country we see that they're very dispersed right you might think well if it's the best practice everybody would be concentrated on but it's actually not the best practice for everybody and it's also the case that not everybody knows about these best practices there might be informational barriers why they don't
know about it or there might be reasons why they can't adopt it maybe they don't have the resources to adopt it maybe the workforce isn't such that they can adopt it so there's many reasons why they might not adopt these practices but the main point is that the first law is that in within any country there's enormous variation within the with the adoption of these structured management practices so that's the first thing that we look at the second thing is so do these uh differences in structured management matter right and so one of the ways
that we think about they matter is do they impact the scale of the business right so here we look at the correlation between the structured management practices and the size of the business and so we have two measures of scale um employment which is an input and then revenues which is an output and what we find is over all the countries generally speaking we see a positive relationship between structured management practices and the scale of the business in the US it's so large that uh businesses that are at the least structured death Sile of management
practices as compared to the most structured management practices the ones at the higher end are six times larger than those in the smaller end and the differences for Revenue are even larger there's a positive relationship and it could be what I kind of talked about which there's a reallocation more structured uh businesses may be more productive so they might get more and more economic activity flowing to them so they go larger so that would be one story but another story could be well it's actually not that at all it's that large businesses actually have the
resources to be able to adopt these more structured management practices or it could be a third thing entirely which is that it's neither that it's one causing the other it could be the third factor for instance having a more skilled Workforce May mean that you're more likely to be a large manufacturing plant and it may also mean that you're more able to have more structured management practices so that's you know part of the second law is that there's more uh more structured management practices businesses tend to be larger but there's not a story of causality
there it's a correlation there's a positive correlation and then the last law concerns another outcome set of outcomes and these are a little bit more driven towards what a business is looking at so they're about productivity and profitability and exports so starting with productivity we find that if you look at the desiles of structured management practices from the least structured management practices again to the most structured management practices the plants uh adopting those we see that there's a positive relationship over those desiles with productivity so less structured management practices adopting firms have lower productivity than
those with more structured management practices again it's not a story about causality it's a question about correlations but what we find really interesting is this of course is that we at the beginning I've been talking about how we're looking at management practices through a lens of productivity right and so we are hoping that there might be a relationship between the productivity and the management practices and so we see this positive relationship and we see it over all the countries why I'm interested in productivity is productivity is a really big driver of the living standards for
any country and so understanding when there's impediments to productivity growth what holds firms back from achieving the frontier of productivity is really important to help us understand any impediments that we might have to improving our standard of living peel that back a little bit see what's happening with productivity when you peel that back a little bit further it's driven by a lot by uh productivity at businesses and then so a central question is what's helping businesses achieve uh getting to the productivity Frontier
